8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

                             

FORM 8-K
CURRENT REPORT
Pursuant To Section 13 OR 15(d) Of The Securities Exchange Act Of 1934
Date of Report (Date of earliest event reported): November 8, 2004

THE DIXIE GROUP, INC.
(Exact name of Registrant as specified in its charter)

          Tennessee          
(State or other jurisdiction of incorporation)        0-2585        
(Commission File Number)         62-0183370      
(I.R.S. Employer Identification No.)

345-B Nowlin Lane, Chattanooga, Tennessee
(Address of principal executive offices)    37421   
(zip code)

Registrant's telephone number, including area code (423) 510-7010

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01	Entry into a Material Definitive Agreement.
	On November 8, 2004, The Dixie Group, Inc. ("Dixie"), completed its acquisition of the partnership interest in Chroma Systems Partnership ("Chroma"), held by Monterey Color Systems, Inc. ("MCSI"), a wholly-owned subsidiary of Monterey Carpets, Inc. ("Monterey") for a nominal cash consideration. The transaction was structured as a purchase by Chroma of the general partnership interest held by MCSI. Chroma Technologies, Inc. ("CTI"), Dixie's wholly-owned subsidiary, joined in the agreement, and Dixie executed the agreement as guarantor of the obligations of its subsidiary. Collins & Aikman, Inc. ("C&A") executed the agreement as guarantor of the obligations of its subsidiary, Monterey. In addition, the parties entered into an agreement to facilitate the orderly transition of the dyeing and finishing services performed by Chroma for Monterey to other facilities owned by C&A. As a consequence of the transaction, Dixie now effectively owns 100% of the partnership. Prio r to the transaction, Chroma performed dyeing and finishing services principally for Dixie and Monterey, and was owned jointly by them, through wholly-owned subsidiaries. On November 10, 2004, Dixie, each of the subsidiaries of Dixie as guarantors, and Fleet Capital Corporation, as Agent and sole Lender, entered into that certain First Amendment to Amended and Restated Loan and Security Agreement (the "First Amendment"). The agreement amends that certain Amended and Restated Loan and Security Agreement, dated April 14, 2004, pursuant to which Lenders agreed to make certain loans and other extensions of credit to Dixie from time to time. Among other things, the First Amendment modifies certain financial covenants, increases the amount of the Revolver Commitments by $5.0 million to $45.0 million and provides for a new $10.0 million capital expenditure loan facility. Dixie entered into the First Amendment to enhance its financial flexibility and support the high rate of growth its businesses are experiencing.
Item 9.01.	Financial Statements and Exhibits.
	(c)	Exhibits
		(4.1)	First Amendment to Amended and Restated Loan and Security Agreement, dated November 10, 2004, by and among The Dixie Group, Inc., each of its subsidiaries as guarantors, and Fleet Capital Corporation.
		(4.2)	Consent to Acquisition of Partnership Interest by Chroma Systems partners, dated October 29, 2004, by Fleet Capital Corporation.
		(10.1)	Chroma Transition Agreement, dated November 8, 2004, by and among The Dixie Group, Inc., Chroma Technologies, Inc., Chroma Systems Partners, Collins & Aikman Floorcoverings, Inc., Monterey Carpets, Inc., and Monterey Color Systems, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:    November 10, 2004	THE DIXIE GROUP, INC.
	By: /s/ Gary A. Harmon                Gary A. Harmon Chief Financial Officer

EX-4.1

EXHIBIT 4.1

FIRST AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT

     THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is made and entered into this 10th day of November, 2004, by and among THE DIXIE GROUP, INC., a Tennessee corporation ("Borrower"), each of the subsidiaries of Borrower as guarantors ("Guarantors"), FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Agent"), in its capacity as collateral and administrative agent for the Lenders (as defined in the Loan Agreement referenced below); and Lenders.

Recitals:

     Lenders, Agent, Guarantors and Borrowers are parties to a certain Amended and Restated Loan and Security Agreement dated April 14, 2004 (as at any time amended, the "Loan Agreement"), pursuant to which Lenders agreed to make certain loans and other extensions of credit to Borrower from time to time, subject to the terms and conditions contained therein.

     Borrower has requested that Agent and Lenders amend certain provisions of the Loan Agreement in order to, among other things, increase the amount of the Revolver Commitments and to provide for the extension by Lenders to Borrower of a new capital expenditure loan facility. Agent and Lenders are willing to amend the Loan Agreement as hereinafter set forth, subject to the conditions contained herein.

     NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby severally acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

1.     Definitions. All capitalized terms used in this Agreement, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Loan Agreement.

2.     Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows:

(a)  By deleting the reference to "$60,000,000" contained on the cover page to the Loan Agreement and by substituting a reference to "$75,000,000" in lieu thereof.

(b)  By deleting the reference to "$60,000,000" contained in Section 1 of the Loan Agreement and by substituting a reference to "$75,000,000" in lieu thereof.

(c)  By adding a new Section 1.4 to the Loan Agreement, immediately following Section 1.3 of the Loan Agreement, that reads as follows:

1.4  Capital Expenditure Facility.

     1.4.1 CapEx Loans. Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make to Borrower, to the extent of the CapEx Loan Commitment, CapEx Loan Advances on any Business Day during the period from the First Amendment Closing Date to May 10, 2007, to finance Borrower's purchase of Eligible Equipment and Eligible Real Estate Improvements. In no event shall any Lender have any obligation to honor a request of Borrower for a CapEx Loan unless at the time of such request each of the CapEx Loan Conditions is satisfied, and the principal amount of each CapEx Loan that is requested by Borrower shall not be less than $200,000. The proceeds of each CapEx Loan shall be used solely to purchase Eligible Equipment and Eligible Real Estate Improvements and the amount of each CapEx Loan shall not exceed 80% of the Equipment Purchase Price of the Eligible Equipment or 80% of the Real Estate Improvement Purchase Pric e of the Eligible Real Estate Improvements so purchased. Each Lender shall make its CapEx Loan Advance available to Agent in immediately available funds, to such account of Agent as Agent may designate, not later than 12:00 noon on the date that Borrower requests such CapEx Loan. After Agent's receipt of the proceeds of such CapEx Loan Advance, and upon satisfaction of the conditions precedent set forth in Section 10 hereof and Section 10 of the First Amendment, Agent shall make the proceeds of all such CapEx Loan Advances available to Borrower on the date requested by Borrower by transferring same day funds equal to the proceeds of such CapEx Loan Advances received by Agent to an account designated by Borrower in writing. All CapEx Loans shall be secured by the Collateral. Borrower may not reborrow any amount repaid with respect to any of the CapEx Loans. The CapEx Loans shall bear interest as set forth in Section 2.1.1 hereof.

     1.4.2  CapEx Note. The CapEx Loans made by Lenders and interest accruing thereon shall be evidenced by the records of Agent and each Lender and by the CapEx Note, which shall be executed by Borrower and delivered to Agent, on behalf of each Lender, on the First Amendment Closing Date. All outstanding principal amounts and accrued interest under the CapEx Note shall be due and payable as set forth in Section 4.3(a) hereof.

(d)  By adding a new paragraph to Section 2.1.1 of the Loan Agreement, immediately prior to the last paragraph of Section 2.1.1 of the Loan Agreement, that reads as follows:

     Borrower agrees to pay interest in respect of all unpaid principal amounts outstanding with respect to CapEx Loan Advances from the respective dates such principal amounts are advanced until paid (whether at stated maturity, on acceleration, or otherwise) at a rate per annum equal to the applicable rate indicated below:

     (i)  for CapEx Loan Advances made or outstanding in whole or in part as Base Rate Loans, the Applicable Margin for such Loans plus the Base Rate in effect from time to time; or

     (ii)  for CapEx Loan Advances made or outstanding in whole or in part as LIBOR Loans, the Applicable Margin for such Loans plus the relevant Adjusted LIBOR Rate for the applicable Interest Period selected by Borrower in conformity with this Agreement.

(e)  By deleting the two references to "$15,000,000" contained in the first sentence of Section 2.2.4 of the Loan Agreement and by substituting references to "$10,000,000" in lieu thereof.

(f)  By adding a new Section 4.3(a) to the Loan Agreement, immediately following Section 4.3 of the Loan Agreement, that reads as follows:

4.3(a)    Repayment of CapEx Loans.

     4.3(a).1 Payment of Principal. The principal balance of the CapEx Loans made for the purchase of Eligible Equipment shall be paid in consecutive monthly installments equal to one-sixtieth (1/60th) of the original principal thereof, commencing on the first day of the month after the First Amendment Closing Date and on the first day of each month thereafter. The principal balance of the CapEx Loans made for the purchase of Eligible Real Estate Improvements shall be paid in consecutive monthly installments equal to one-eighty-fourth (1/84th) of the original principal thereof, commencing on the first day of the month after the First Amendment Closing Date and on the first day of each month thereafter. The final installment shall be in the amount of the remaining principal balance of CapEx Loans outstanding under the CapEx Note and shall be payable on the Commitment Termination Date.

     4.3(a).2 Payment of Interest.Interest shall accrue on the unpaid principal balance of the CapEx Loans as provided in Section 2.1.1 hereof, and shall be due and payable on (i) the first calendar day of each month for the immediately preceding month, computed through the last calendar day of the preceding month, whether all or any portion of the CapEx Loan bears interest as a Base Rate Loan or a LIBOR Loan, (ii) the last day of the applicable Interest Period in the case of any portion of such CapEx Loan that is a LIBOR Loan and (iii) the date of any prepayment of CapEx Loans. Accrued interest shall also be paid by Borrower as and when payable in Sections 4.3(a).3 and 4.3(a).4, in connection with any prepayment of the CapEx Loans and on the Commitment Termination Date. With respect to any Base Rate Loan converted into a LIBOR Loan pursuant to Section 2.1.2 on a day when interest would not otherwise have been payable with respect to such Base Rate Loan, accrued interest to the date of such conversion on the amount of such Base Rate Loan so converted shall be paid on the conversion date.

     4.3(a).3 Mandatory Prepayment of CapEx Loans. Borrower shall prepay the entire unpaid principal balance of the CapEx Loans, and all accrued but unpaid interest thereon, upon the Commitment Termination Date. Borrower also shall be required to prepay the CapEx Loans as follows:

     (i) Borrower shall prepay the CapEx Loans, or all of them, as selected by Agent, in connection with dispositions of Equipment by Borrower, as and when required by Section 7.4.2.

     (ii) Borrower shall prepay the CapEx Loans, or all of them, as selected by Agent, from the Net Proceeds of insurance or condemnation awards paid in respect of any Equipment unless Borrower is authorized to use such Net Proceeds pursuant to Section 7.1.2(ii).

     4.3(a).4 Optional Prepayments of CapEx Loans. Borrower may, at its option, prepay any portion of the CapEx Loans in whole at any time or in part from time to time, by paying the principal amount to be prepaid together with interest accrued or unpaid thereon to the date of prepayment. Borrower shall give written notice (or telephonic notice confirmed in writing) to Agent of any intended prepayment not less than 1 Business Day prior to any prepayment. Such notice, once given, shall be irrevocable.

     4.3(a).5 Application of Prepayments. Each prepayment of the CapEx Loans shall be applied first to accrued but unpaid interest and the balance to installments of principal in the inverse order of their maturities.

(g)  By deleting Section 6.7 of the Loan Agreement and by substituting the following new Section 6.7 in lieu thereof:

     6.7 Limitation on Equity Interests. Notwithstanding anything to the contrary set forth in Section 6.1 above, the types or items of Collateral described in such Section shall include only sixty-six percent (66%) of the voting stock of any Foreign Subsidiary and shall not include any Equity Interests of Chroma Systems in Chroma Holdings or any Equity Interests of Chroma Holdings in Chroma Systems until such time as the Carpet Chromatics Note is paid in full and the Carpet Chromatics Loan Documents are terminated.

     (h)  By deleting Section 7.1.2(ii) of the Loan Agreement and by substituting the following new Section 7.1.2(ii) in lieu thereof:

     (ii)  Unless otherwise consented to by the Required Lenders in writing, any proceeds of insurance referred to in this Section 7.1.2 and any condemnation awards that are paid to Agent in connection with a condemnation of any of the Collateral shall be paid to Agent and (a) in the case of proceeds that relate to Inventory, applied first to the payment of the Revolver Loans and then to any other Obligations outstanding, and (b) in the case of proceeds of Equipment or Real Estate, applied first to the Term Loans, provided that proceeds of Equipment may be applied by Agent first to the CapEx Loans in Agent's discretion, and then to any other Obligations outstanding; provided that if requested by Borrower in writing within 5 days after Agent's receipt of such proceeds and if no Default or Event of Default exists, Borrower and the other Obligors may apply such proceeds to repair or replace the damaged or destroyed Equipment or Rea l Estate so long as (1) such repair or replacement is promptly undertaken and concluded, (2) replacements of buildings are constructed on the sites of the original casualties and are of comparable size, and quality and utility to the destroyed buildings, (3) the repaired or replaced Property is at all times free and clear of Liens other than Permitted Liens that are not Purchase Money Liens, (4) Borrower and such other Obligors comply with such disbursement procedures for such proceeds as Agent may reasonably impose for repair or replacement, and (5) the amount of proceeds from any single casualty affecting Equipment or Real Estate does not exceed $5,000,000.

     (i)  By deleting Section 7.4.2 of the Loan Agreement and by substituting the following new Section 7.4.2 in lieu thereof:

     7.4.2 Dispositions of Equipment. Borrower will not sell, lease or otherwise dispose of or transfer any of the Equipment or any part thereof without the prior written consent of Agent; provided, however, that the foregoing restriction shall not apply, for so long as no Default or Event of Default exists, to (i) dispositions of Equipment which, in the aggregate during any consecutive 12-month period, has a fair market value or book value, whichever is more, of $250,000 or less, provided that all Net Proceeds thereof are remitted to Agent for application to the Obligations (other than the Term Loans or the CapEx Loans), or (ii) replacements of Equipment that is substantially worn, damaged or obsolete with Equipment of like kind, function and value, provided that the replacement Equipment shall be acquired prior to or concurrently with any disposition of the Equipment that is to be replaced, the replacement Equipment shall be free and clear of L iens other than Permitted Liens that are not Purchase Money Liens, and Borrower shall have given Agent at least 5 days prior written notice of such disposition, or (iii) Permitted Asset Dispositions, or (iv) dispositions of surplus dyeing Equipment located at 3201 South Susan Street, Santa Ana, California 92704 as of the First Amendment Closing Date in an aggregate amount of up to $1,000,000, provided that all Net Proceeds thereof are remitted to Agent for application to the Obligations (other than the Term Loans or the CapEx Loans).

     (j)  By deleting the two references to "$15,000,000" contained in the first sentence of Section 7.5 of the Loan Agreement and by substituting references to "$10,000,000" in lieu thereof.

     (k)  By deleting Section 9.2.3(vii) of the Loan Agreement and by substituting the following new Section 9.2.3(vii) in lieu thereof:

     (vii)  Debt for Money Borrowed by Borrower (other than the Obligations), but only to the extent that such Debt is outstanding on the First Amendment Closing Date and is listed on Schedule 9.2.3 hereto and is not to be satisfied on or about the First Amendment Closing Date from the proceeds of the Loans;

     (l)  By deleting Section 9.2.9 of the Loan Agreement and by substituting the following new Section 9.2.9 in lieu thereof:

9.2.9 Capital Expenditures. Make Capital Expenditures which in the aggregate, as to Borrower and its Subsidiaries, exceed (i) $17,000,000 during Fiscal Year 2004, (ii) $32,000,000 in the aggregate during Fiscal Years 2004 and 2005, and (iii) $15,000,000 during Fiscal Year 2006 and during each Fiscal Year thereafter; provided, that, the GE Lease and the conversion of the GE Lease into a capital lease shall not be deemed Capital Expenditures for purposes of this covenant nor subject to the limitation contained herein.

     (m)  By deleting the reference to "$15,000,000" contained in the introductory sentence of Section 9.3 of the Loan Agreement and by substituting a reference to "$10,000,000" in lieu thereof.

     (n)  By deleting the last paragraph that is contained in Section 9.3 of the Loan Agreement and by substituting the following new last paragraph in lieu thereof:

     Notwithstanding the foregoing, if a Trigger Event shall have occurred as a result of Availability being less than $10,000,000 and thereafter Borrower maintains Availability of greater than $15,000,000 on each Business Day during a Fiscal Quarter and no Event of Default exists, then Agent and Lenders agree not to test the financial covenants set forth in this Section 9.3 until Availability is less than $10,000,000 or an Event of Default occurs. If a Trigger Event shall have occurred as a result of the occurrence of an Event of Default but Availability is not less than $10,000,000, and after the occurrence of such Event of Default, such Event of Default is waived in writing by Agent, then Agent and Lenders agree not to test the financial covenants set forth in this Section 9.3 until Availability is less than $10,000,000 or an Event of Default occurs.

     (o)  By adding a new Section 11.1.22 to the Loan Agreement, immediately following Section 11.1.21 of the Loan Agreement, that reads as follows:

     11.1.22 Chroma Systems Real Estate Loan Documents and Carpet Chromatics Loan Documents. There shall occur a default or event of default under any of the Chroma Systems Real Estate Loan Documents or the Carpet Chromatics Loan Documents and such default or event of default shall continue beyond any applicable cure period provided for therein.

     (p)  By deleting the amount of each Lender's "Revolver Commitment" set forth opposite such Lender's name under such headings on the signature pages to the Loan Agreement and by substituting in lieu thereof the "Revolver Commitment" set forth opposite such Lender's name under such headings on the signature pages to this Agreement.

     (q)  By adding the following new definitions of "CapEx Loan," "CapEx Loan Advance," "CapEx Loan Commitment," "CapEx Loan Conditions," "CapEx Note," "Carpet Chromatics Loan Documents," "Carpet Chromatics Note," "Chroma Acquisitions," "Chroma Holdings," "Chroma Systems Real Estate Loan Documents," "Eligible Equipment," "Eligible Real Estate Improvement," "Equipment Purchase Price," "First Amendment," "First Amendment Closing Date," and "Real Estate Improvement Purchase Price" to Appendix A to the Loan Agreement, in proper alphabetical sequence:

     CapEx Loan - means the aggregate of the CapEx Loan Advances to be made by Lenders to Borrower pursuant to Section 1.4 of the Agreement.

     CapEx Loan Advance - means each Lender's portion of the CapEx Loan.

     CapEx Loan Commitment - means at any date for any Lender, the obligation of such Lender to make CapEx Loan Advances pursuant to the terms and conditions of the Agreement, which shall not exceed the principal amount set forth opposite such Lender's name under the heading "CapEx Loan Commitment" on the signature pages of the First Amendment (or any subsequent amendment to the Agreement) or the signature page of any Assignment and Acceptance by which it became a Lender, as modified from time to time pursuant to the terms of the Agreement or to give effect to any applicable Assignment and Acceptance; and the term "CapEx Loan Commitments" means the aggregate principal amount of the CapEx Loan Commitments of all Lenders, the maximum amount of which shall be $10,000,000.

     CapEx Loan Conditions - means, with respect to each CapEx Loan requested by Borrower pursuant to Section 1.4 hereof, the following conditions: (i) Borrower has given to Agent written notice of a request for such CapEx Loan at least five (5) Business Days prior to the date on which Borrower desires for such CapEx Loan to be funded, in which notice Borrower has described in detail the Eligible Equipment or Eligible Real Estate Improvement, the amount of the purchase price, the identity, address and phone number of the seller or construction contractor, and the expected delivery date of the Eligible Equipment or materials for the Eligible Real Estate Improvements; (ii) Borrower has provided to Agent an updated construction budget with respect to Eligible Real Estate Improvements, in form and substance satisfactory to Agent in all respects; (iii) Borrower has authorized the filing of a UCC-1 financing statement or statements or M ortgage or an amendment to a current Mortgage satisfactory to Agent and sufficient to perfect Agent's Lien, for the benefit of itself as Agent and for the benefit of the Lenders and the other Secured Parties, in the Equipment and Real Estate purchased with the proceeds of such CapEx Loan as a first priority Lien thereon; and (iv) the amount of all CapEx Loans made for Eligible Real Estate Improvements shall not exceed $4,000,000 in the aggregate at any time and the amount of the CapEx Loan that is requested, together with all other CapEx Loans previously made to Borrower by Lenders during the term of this Agreement (whether for Eligible Equipment or Eligible Real Estate Improvements), shall not exceed $10,000,000 in the aggregate.

     CapEx Note - means a CapEx Note to be executed by Borrower in favor of each Lender in the form of Exhibit M attached hereto, which shall be in the face amount of such Lender's CapEx Commitment and which shall evidence all CapEx Loan Advances made by such Lender to Borrower pursuant to this Agreement.

     Carpet Chromatics Loan Documents - means the Carpet Chromatics Note, the Partnership Interest Security Agreement dated March 2001, among Chroma Systems, Chroma Holdings and Carpet Chromatics, Inc., and any and all other agreements, instruments and documents executed in connection therewith or pursuant thereto.

     Carpet Chromatics Note - means that certain Promissory Note dated October 1, 2000 in the original principal amount of $1,783,922 by Chroma Systems in favor of Carpet Chromatics, Inc., having a maturity date of October 1, 2005.

     Chroma Acquisitions - means Chroma Acquisitions, LLC, a Georgia limited liability company.

     Chroma Holdings - means Chroma Holdings, LLC, a Delaware limited liability company.

     Chroma Systems Real Estate Loan Documents - means a certain promissory note dated as of March 10, 2003 in the original principal amount of $7,500,000 by Chroma Systems in favor of Wells Fargo Bank, National Association, a certain Deed of Trust With Assignment of Rents dated as of May 12, 1995 by Chroma Systems in favor of Wells Fargo Bank, National Association and recorded on May 26, 1995 as instrument number 95-0223578 in the Official Records of Orange County, California, relating to the real property of Chroma Systems located at 3201 South Susan Street, Santa Ana, California 92704, as modified, and any and all other agreements, instruments and documents executed in connection therewith or pursuant thereto.

     Eligible Equipment - means whole, finished and not parts equipment (including tufting, finishing, distribution and dyeing equipment, yarn processing equipment, and other equipment constituting acceptable collateral as determined by Agent in Agent's sole discretion) that has been purchased by Borrower after September 1, 2004 in the Ordinary Course of Business and that is necessary to the operations of its business; has been delivered to and accepted by Borrower and installed at premises owned or leased by Borrower, is subject to Agent's duly perfected Lien and no other Lien that is not a Permitted Lien (other than a Purchase Money Lien); does not and will not, after delivery to and installation at Borrower's premises, constitute a fixture under applicable law unless each landlord and mortgagee in respect of such premises has executed in favor of Agent a lien waiver in form and content satisfactory to Agent; does not and will not, after deli very to and installation at Borrower's premises, constitute an accession to other equipment that is subject to any Lien (whether or not a Permitted Lien) in favor of any Person other than Agent unless the holder of any such Lien agrees in writing to disclaim any interest in the Eligible Equipment; and does not constitute technology related assets.

     Eligible Real Estate Improvement - means all buildings, structures and other improvements that have been or are to be purchased by Borrower after September 1, 2004 and constructed and located in, on or about any of the Real Estate or on any part or parcel of any of the Real Estate and which are subject to Agent's duly perfected Lien and Mortgage and no other Lien or Mortgage that is not a Permitted Lien (other than a Purchase Money Lien).

     Equipment Purchase Price - means the invoice price for any Eligible Equipment purchased by Borrower on or after the First Amendment Closing Date exclusive of any applicable sales tax, inspection, installation, transportation freight or similar costs.

     First Amendment - means that certain First Amendment to Amended and Restated Loan and Security Agreement dated November 10, 2004, among Borrower, Guarantors, Agent and Lenders.

     First Amendment Closing Date - means the date on which each of the conditions precedent set forth in the First Amendment are satisfied.

     Real Estate Improvement Purchase Price - means not more than $4,000,000 in the aggregate with respect to all Eligible Real Estate Improvements.

     (r)  By deleting the definitions of "Affiliate," "Applicable Margin," "Change of Control," "Commitment," "Loan," "Notes," "Real Estate," and "Subsidiary" from Appendix A to the Loan Agreement and by substituting the following new definitions in lieu thereof, in proper alphabetical sequence:

     Affiliate - a Person (other than a Subsidiary or Chroma Holdings until such time as the Carpet Chromatics Note is paid in full and the Carpet Chromatics Loan Documents are terminated): (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, another Person; (ii) which beneficially owns or holds 20% or more of any class of the Equity Interests of a Person; or (iii) 20% or more of the Equity Interests with power to vote of which is beneficially owned or held by another Person or a Subsidiary of another Person. For purposes hereof, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of any Equity Interest, by contract or otherwise.

     Applicable Margin - a percentage equal to zero with respect to Revolver Loans that are Base Rate Loans, 2.00% with respect to Revolver Loans that are LIBOR Loans, zero with respect to each Term Loan Advance and CapEx Loan Advance made or outstanding as a Base Rate Loan, 2.50% with respect to each Term Loan Advance and CapEx Loan Advance made or outstanding as a LIBOR Loan, and .375% with respect to unused line fees payable to Lenders pursuant to Section 2.2; provided that, commencing with Agent's receipt of the financial statements described in Section 9.1.3(ii) of the Agreement for the period ended December 31, 2004, the Applicable Margin shall be increased or (if no Default or Event of Default exists) decreased, based upon the Leverage Ratio, as follows:

Applicable Margin For:
Level	Leverage Ratio	Revolver Loans		Term Loans and CapEx Loan		Unused Line Fee
		Base Rate	LIBOR	Base Rate	LIBOR
I	Greater than 5.0 to 1.0	.75%	3.00%	1.00%	3.50%	.375%
II	If less than or equal to 5.0 to 1.0 but greater than 4.0 to 1.0	.50%	2.75%	.75%	3.25%	.375%
III	If less than or equal to 4.0 to 1.0 but greater than 3.50 to 1.0	.25%	2.50%	.50%	3.00%	.375%
IV	If less than or equal to 3.50 to 1.0 but greater than 3.0 to 1.0	0	2.25%	0.25%	2.75%	.375%
V	If less than or equal to 3.00 to 1.0	0	2.00%	0	2.50%	.375%

     The Applicable Margin shall be subject to reduction or increase, as applicable and as set forth in the table above, on a quarterly basis according to the performance of Borrower as measured by the Leverage Ratio for the immediately preceding 4 Fiscal Quarters of Borrower. Except as set forth in the last sentence hereof, any such increase or reduction in the Applicable Margin provided for herein shall be effective 3 Business Days after receipt by Agent of the applicable financial statements and corresponding Compliance Certificate. If the financial statements and the Compliance Certificate of Borrower setting forth the Leverage Ratio are not received by Agent by the date required pursuant to Section 9.1.3 of the Agreement, the Applicable Margin shall be determined as if the Leverage Ratio exceeds 5.0 to 1.0 until such time as such financial statements and Compliance Certificate are received and any Event of Default resulting from a failure timely to del iver such financial statements or Compliance Certificate is waived in writing by Agent and Lenders; provided, however, that nothing herein shall be deemed to prevent Agent and Lenders from charging interest at the Default Rate at any time that an Event of Default exists.

     Change of Control - (i) the Frierson Family shall cease to have Control of Borrower; or (ii) Borrower shall cease to own and control 100% of the Equity Interests of any of C-Knit, Fabrica, Bretlin, Chroma, Masland or Chroma Acquisitions; (iii) Bretlin shall cease to own and control 100% of the Equity Interests of any of Candlewick or Dixie Logistics; (iv) Chroma, Chroma Acquisitions and Chroma Holdings, collectively, shall cease to own and control 100% of the Equity Interests of Chroma Systems; or (v) Chroma Systems shall cease to own and control 100% of the Equity Interests of Chroma Holdings.

     Commitment - at any date for any Lender, the aggregate amount of such Lender's Revolver Commitment, Term Loan Commitment and CapEx Loan Commitment on such date, and "Commitments" means the aggregate amount of all Revolver Commitments, Term Loan Commitments and CapEx Loan Commitments.

     Loan - a Revolver Loan, a Term Loan Advance or a CapEx Loan Advance (and each Base Rate Loan and LIBOR Loan comprising such Loan).

     Notes - each Revolver Note, each Term Note, each CapEx Note, and any other promissory note executed by Borrower at Agent's request to evidence any of the Obligations.

     Real Estate - all parcels and tracts of real Property and the improvements thereon of each Obligor, wherever located, and whether now existing or hereafter acquired, including, without limitation, all real Property and improvements thereon of each Obligor located in Alabama and Tennessee (but excluding the real Property of Borrower and its Subsidiaries located in Gastonia, Gaston County, North Carolina, Fayetteville, Cumberland County, North Carolina, and to the extent that the Chroma Systems Real Estate Loan Documents have not been terminated, Orange County, Santa Ana, California).

     Subsidiary - any Person in which more than 20% of its outstanding Voting Stock or more than 20% of all Equity Interests is owned directly or indirectly by Borrower, by one or more other Subsidiaries of Borrower or by Borrower and one or more other Subsidiaries, including C-Knit, but excluding Chroma Holdings until such time as the Carpet Chromatics Note is paid in full and the Carpet Chromatics Loan Documents are terminated.

(s)  By deleting the reference to "$40,000,000" contained in the definition of "Inventory Formula Amount" in Appendix A to the Loan Agreement and by substituting a reference to "$45,000,000" in lieu thereof.

(t)  By deleting the reference to "$40,000,000" contained in the definition of "Revolver Commitments" set forth in Appendix A to the Loan Agreement and by substituting a reference to "$45,000,000" in lieu thereof.

(u)  By adding Exhibit M to the Loan Agreement immediately following Exhibit L thereof in the form of Exhibit M attached to this Amendment.

(v)  By deleting Schedules 7.1.1, 7.1.2, 8.1.1, 8.1.4, 8.1.5, 8.1.12, 8.1.13, 8.1.15, 8.1.18, 8.1.19, 8.1.21, 8.1.22, 8.1.24, 9.2.3, 9.2.5, and 9.2.8 from the Loan Agreement and by substituting the new Schedules 7.1.1, 7.1.2, 8.1.1, 8.1.4, 8.1.5, 8.1.12, 8.1.13, 8.1.15, 8.1.18, 8.1.19, 8.1.21, 8.1.22, 8.1.24, 9.2.3, 9.2.5, and 9.2.8 attached hereto in lieu thereof.

(w)  By adding Schedule 9.2.4 attached hereto to the Loan Agreement immediately following Schedule 9.2.3 thereof.

3.     Interest Rate Disclosure. The Base Rate on the date hereof is 4.75% per annum and, therefore, the rate of interest in effect hereunder on the date hereof, expressed in simple interest terms, is (i) 4.75% per annum with respect to any portion of the Revolver Loans bearing interest as a Base Rate Loan, (ii)4.75% per annum with respect to any portion of the Term Loan Advances bearing interest as a Base Rate Loan, and (iii) 4.75% per annum with respect to any portion of the CapEx Loan Advances bearing interest as a Base Rate Loan.

4.     Ratification and Reaffirmation. Each Obligor hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of such Obligor's covenants, duties, indebtedness and liabilities under the Loan Documents.

5.     Acknowledgments and Stipulations. Each Obligor acknowledges and stipulates that the Loan Agreement and the other Loan Documents are legal, valid and binding obligations of such Obligor that are enforceable against such Obligor in accordance with the terms thereof; all of the Obligations are owing and payable without defense, offset or counterclaim (and to the extent there exists any such defense, offset or counterclaim on the date hereof, the same is hereby waived by such Obligor); and the security interests and Liens granted by each Obligor in favor of Agent, for the benefit of itself, Lenders and the other Secured Parties, are duly perfected, first priority security interests and Liens.

6.     Representations and Warranties. Each Obligor represents and warrants to Agent and Lenders, to induce Agent and Lenders to enter into this Agreement, that no Default or Event of Default exists on the date hereof; the execution, delivery and performance of this Agreement have been duly authorized by all requisite corporate action on the part of each Obligor and this Agreement has been duly executed and delivered by each Obligor; and except to the extent otherwise disclosed by an Obligor to Agent and Lenders in writing, all of the representations and warranties made by an Obligor in the Loan Agreement are true and correct on and as of the date hereof, except to the extent that such representations or warranties refer to an earlier date or period.

7.     Acknowledgments, Representations, Consents and Reaffirmations by Guarantors. Each Guarantor hereby (i) acknowledges and stipulates that its respective Guaranty set forth in Section 15 of the Loan Agreement is a legal, valid and binding obligation of such Guarantor that is enforceable against such Guarantor in accordance with the terms thereof, (ii) represents and warrants that this Agreement has been duly executed and delivered by such Guarantor and that all of the representations and warranties made by such Guarantor in the Guaranty are true and correct on and as of the date hereof, (iii) consents to Borrower's execution and delivery of this Agreement and of the other documents, instruments or agreements Borrower agrees to execute and deliver pursuant hereto, and (iv) affirms that nothing contained herein shall modify in any respect whatsoever the Guaranty and reaffirms that the Guaranty is and shall remain in full force and effect.

8.     Reference to Loan Agreement. Upon the effectiveness of this Agreement, each reference in the Loan Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Loan Agreement, as amended by this Agreement.

9.     Breach of Agreement. This Agreement shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

10.     Conditions Precedent. The effectiveness of the amendments contained herein are subject to the satisfaction of each of the following conditions precedent, in form and substance satisfactory to Agent and Lenders, unless satisfaction thereof is specifically waived in writing by Agent:

(a)  No Default or Event of Default shall exist;

(b)  Agent shall have received a duly executed counterpart of this Amendment, together with such additional documents, instruments and certificates as Agent and Lenders shall require in connection therewith;

(c)  Each Lender shall have received a duly executed (i) Third Amended and Restated Revolver Note in the amount of its Revolver Commitment (as amended hereby) in the form of Exhibit A attached hereto, and (ii) a CapEx Note in the amount of its CapEx Loan Commitment;

(d)  Agent shall have received legal opinions from Borrower's and Guarantors' primary counsel, in satisfactory form and scope, as to this Amendment, the Loan Agreement, the other Loan Documents, the Collateral and all of the transactions contemplated hereby and thereby; and

(e)  Borrower shall have paid, or made provision for the payment on the date hereof of, all fees and expenses set forth in Section 13 hereof.

11.     Additional Covenants. To induce Agent and Lenders to enter into this Agreement, Borrower covenants and agrees as follows: (a) on or before December 31, 2004, the appropriate Borrower or Guarantor shall execute and deliver to Agent an amendment to each of the Mortgages for the Alabama Real Estate only that reflects the increase in the Revolver Commitments and the inclusion of the CapEx Loans, and that is in form and substance satisfactory to Agent; (b) on or before December 31, 2004, Borrower shall deliver to Agent fully paid mortgagee title insurance endorsements, in standard ALTA form, issued by Chicago Title Insurance Company, which shall give effect to the Mortgage amendments for the Alabama Real Estate described in the foregoing clause (a) and which shall be in form and substance satisfactory to Agent; and (c) Borrower shall reimburse Agent and Lenders for the payment of all applicable documentary stamp, intangibles, r ecording, note or other similar taxes payable with respect to the Mortgage amendments described in clause (a) and deliver to Agent a supplemental mortgage tax order from the Alabama Department of Revenue with regard to any mortgage taxes required to be paid in connection with the amendments to the Mortgages for the Alabama Real Estate.

12.     No Waiver. In no event shall Agent's and Lenders' entry into this Agreement or their making of additional Loans to Borrower be deemed to constitute a waiver by Agent or any Lender of any Event of Default in existence on the date hereof, or of each Obligor's continuing obligation to comply with all of the terms and conditions of the Loan Agreement and the other Loan Documents, as amended hereby.

13.     Amendment Fee; Expenses of Agent. In consideration of Agent's and Lenders' willingness to enter into this Agreement and modify the terms of the Loan Agreement as set forth herein, Borrower agrees to pay to Agent, for the Pro Rata benefit of the Lenders, an amendment fee in the amount of $37,500, in immediately available funds on the date hereof. Additionally, Borrower agrees to pay, on demand, all costs and expenses incurred by Agent in connection with the preparation, negotiation and execution of this Agreement and any other Loan Documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including, without limitation, the costs and fees of Agent's legal counsel and any taxes or expenses associated with or incurred in connection with any instrument or agreement referred to herein or contemplated hereby.

14.     Effectiveness; Governing Law. This Agreement shall be effective upon execution by Borrower and Guarantors and acceptance by Agent in Atlanta, Georgia (notice of which acceptance is hereby waived), whereupon the same shall be governed by and construed in accordance with the internal laws of the State of Georgia.

15.     Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

16.     No Novation, etc. Except as otherwise expressly provided in this Agreement, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This Agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

17.     Counterparts; Telecopied Signatures. This Agreement may be executed in any number of counterparts and by different parties to this Agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.

18.     Further Assurances. Obligors agree to take such further actions as Agent shall request from time to time in connection herewith to evidence or give effect to the agreements and amendments set forth herein or any of the transactions contemplated hereby.

19.     Section Titles. Section titles and references used in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto.

20.     Release of Claims. To induce Agent and Lenders to enter into this Agreement, Borrower and each Guarantor hereby releases, acquits and forever discharges Agent and each Lender, and all officers, directors, agents, employees, successors and assigns of Agent and Lenders, from any and all liabilities, claims, demands, actions or causes of action of any kind or nature (if there be any), whether absolute or contingent, disputed or undisputed, at law or in equity, or known or unknown, that Borrower or such Guarantor now has or ever had against Agent or any Lender arising under or in connection with any of the Loan Documents or otherwise. Borrower and each Guarantor represents and warrants to Agent and Lenders that neither Borrower nor any Guarantor has transferred or assigned to any Person any claim that Borrower or any Guarantor ever had or claimed to have against Agent or any Lender.

[Remainder of Page Left Intentionally Blank.]

21.     Waiver of Jury Trial. To the fullest extent permitted by Applicable Law, the parties hereto each hereby waives the right to trial by jury in any action, suit, counterclaim or proceeding arising out of or related to this Agreement.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal, and delivered by their respective duly authorized officers on the date first written above.

ATTEST:	THE DIXIE GROUP, INC. ("Borrower")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                     Vice President and Chief Financial Officer By: /s/ D. Eugene Lasater                                Controller
ATTEST:	FABRICA INTERNATIONAL, INC., formerly known as Fabrica International ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: Vice President
ATTEST:	BRETLIN, INC. ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: President
ATTEST:	CANDLEWICK YARNS, INC. ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: President

[Signatures continue on following page.]

ATTEST:	CHROMA TECHNOLOGIES, INC. ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: President
ATTEST:	DIXIE GROUP LOGISTICS, INC. ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: President
ATTEST:	MASLAND CARPETS, LLC ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: Vice President
ATTEST:	CHROMA ACQUISITIONS, LLC ("Guarantor")
/s/ Geoffrey Young                       Secretary [CORPORATE SEAL]	By: /s/ Gary A. Harmon                                 Title: President
	Accepted in Atlanta, Georgia:
Revolver Commitment: $45,000,000.00 CapEx Commitment: $10,000,000.00	FLEET CAPITAL CORPORATION, as Agent and sole Lender
	By: /s/ Elizabeth L. Waller                              Title: Senior Vice President

The Company has omitted the exhibits to this agreement and agrees to furnish supplementally a copy of the omitted exhibits to the Commission upon request.

EX-4.2

October 29, 2004                                                EXHIBIT 4.2

The Dixie Group, Inc.
2208 South Hamilton Street
Dalton, Georgia 30721
Attention: President

Ladies and Gentlemen:

     Reference is made to that certain Amended and Restated Loan and Security Agreement dated April 14, 2004 (as at any time amended, the "Loan Agreement"), by and among THE DIXIE GROUP, INC., a Tennessee corporation ("Borrower"), each of the subsidiaries of Borrower as guarantors ("Guarantors"), FLEET CAPITAL CORPORATION, a Rhode Island corporation, in its capacity as collateral and administrative agent (together with its successors in such capacity, "Agent") for the various financial institutions party thereto from time to time (the "Lenders"), and Lenders. Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Loan Agreement.

     Pursuant to a certain consent letter agreement dated October 19, 2004, Agent and Lenders consented to (i) the formation by Borrower of a new wholly-owned Subsidiary named Chroma Acquisitions, LLC, a Georgia limited liability company ("New Subsidiary"), and (ii) the transfer by Chroma Technologies, Inc., a California corporation ("Chroma Technologies") to New Subsidiary of 1% of its Equity Interests in Chroma Systems Partners, a California general partnership ("Chroma Systems").

     Borrower has requested that Agent and Lenders consent to the redemption by Chroma Systems of all of the Equity Interests of Monterey Color Systems, Inc., a California corporation ("Monterey") in Chroma Systems (the "Redemption Transaction").

     The Equity Interests in Chroma Systems currently are owned by Chroma Technologies (32.33%), New Subsidiary (1%), Monterey (33.33%), and a wholly owned subsidiary of Chroma Systems named Chroma Holdings, LLC (33.33%), a Delaware limited liability company ("Chroma Holdings"). The 33.33% Equity Interest in Chroma Systems held by Chroma Holdings was purchased from Carpet Chromatics, Inc., a California corporation ("CCI"), and is pledged to CCI pursuant to a certain Partnership Interest Security Agreement among Chroma Systems, Chroma Holdings and CCI (the "CCI Security Agreement") to secure payment by Chroma Systems of the balance of a promissory note held by CCI constituting the purchase price of its 33.33% Equity Interest in Chroma Systems.

     Upon conclusion of the Redemption Transaction, all of the Equity Interests of Chroma Systems will be owned by Chroma Technologies, Chroma Holdings and New Subsidiary.

     Pursuant to the Partnership Agreement of Chroma Systems each of the partners was prevented from hypothecating or otherwise allowing liens to be placed upon its Equity Interests in Chroma Systems; therefore, Chroma Technologies has not been allowed to pledge its Equity Interests in Chroma Systems to Agent as collateral security for the Obligations. Upon consummation of the Redemption Transaction, the foregoing restriction will be removed or waived (without violating the terms of the CCI Security Agreement), so that Chroma Technologies and New Subsidiary will be able to pledge their respective Equity Interests in Chroma Systems to Agent as collateral security for the Obligations.

     Pursuant to Section 9.2.4 of the Loan Agreement, the consent of Agent and Lenders is required for the consummation of the Redemption Transaction. Subject to the terms and conditions set forth herein, Agent and Lenders are willing to consent to the Redemption Transaction, to agree that the Redemption Transaction shall not constitute a Default or an Event of Default under the Loan Agreement, and to amend the Loan Agreement consistent with this letter agreement to reflect the Redemption Transaction.

     NOW, THEREFORE, for and in consideration of TEN DOLLARS ($10.00) in hand paid and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

     1.     Consent. Subject to satisfaction of the following conditions, Agent and Lenders consent to the Redemption Transaction, and Borrower, Agent and Lenders covenant to execute an amendment to the Loan Agreement which reflects the Redemption Transaction, in form and substance satisfactory in all respects to Agent and Lenders, and which in all events contains such amendments to the Loan Agreement or its Schedules necessary to reflect the Redemption Transaction, including the existence of the Debt, Liens and Mortgages disclosed in Section 2 below. Prior to the execution of such amendment, Agent and Lenders agree that the Redemption Transaction shall not constitute a Default or an Event of Default under the Loan Agreement as a result of the violations of any covenants or restrictions under the Loan Agreement resulting solely from the Redemption Transaction:

(a)  No Default or Event of Default shall exist at the time of the Redemption Transaction;

(b)  Agent shall have received a duly executed original counterpart of this letter agreement, together with any other documents referenced herein, and such additional documents, instruments and certificates consistent with the terms hereof as Agent and Lenders shall require;

(c)  Agent shall have received and found acceptable in all respects in its sole discretion, the results of lien searches on Chroma Holdings and Chroma Systems, consisting of lien searches for UCC financing statements, fixture filings, pending suits, bankruptcy filings, judgments, tax liens;

(d)  Agent shall have received and found acceptable in all respects in its sole discretion, certificates of good standing for Chroma Holdings, issued by the Secretary of State or other appropriate official of the jurisdiction of organization of Chroma Holdings and each jurisdiction where the conduct of business activities or the ownership of Property by Chroma Holdings necessitates qualification;

(e)  Agent shall have received and found acceptable in all respects in its sole discretion, copies of the Organization Documents of Chroma Systems and Chroma Holdings, and all amendments thereto, certified by the Secretary of State or other appropriate official of the jurisdiction of each such entity's organization; and

(f)  Agent shall have received and found acceptable in all respects in its sole discretion, duly executed copies of the operative documents relating to the Redemption Transaction, including, without limitation, the Chroma Transition Agreement and all schedules thereto.

     2.     Permitted Debt and Permitted Liens. To induce Agent and Lenders to enter into this letter agreement, Borrower represents, warrants and covenants that (i) Chroma Holdings and Chroma Systems have not incurred and shall not incur after the date hereof any Debt, other than the Debt set forth on Exhibit A attached hereto, (ii) Chroma Holdings and Chroma Systems have not granted and shall not grant after the date hereof any Liens, other than the Liens set forth on Exhibit B attached hereto, and (iii) Borrower shall deliver to Agent on or before the date hereof true and correct copies of all documents evidencing such Debt and Liens.

     3.     Additional Covenants. To induce Agent and Lenders to enter into this letter agreement, Borrower covenants and agrees to deliver or cause to be delivered to Agent and Lenders the following documents on or before November 30, 2004:

(a)  A duly executed amendment to the Loan Agreement which reflects the Redemption Transaction and any other transactions mutually agreed to by Borrower, Agent and Lenders;

(b)  A duly executed Joinder Agreement by Chroma Systems, in form and substance satisfactory in all respects to Agent and Lenders, pursuant to which Chroma Systems shall become a Guarantor under the Loan Agreement;

(c)  A duly executed Security Agreement by Chroma Systems, in form and substance satisfactory in all respects to Agent and Lenders, pursuant to which Chroma Systems shall grant to Agent, for the benefit of itself as Agent and for the benefit of the Lenders and the other Secured Parties, a first priority, perfected security interest and Lien upon all of its assets, other than such assets which are subject to the Liens set forth on Exhibit B attached hereto and to which Agent and Lenders have consented pursuant to Section 1 hereof;

(d)  A duly executed original counterpart of a Stock Pledge Agreement by Borrower and Agent, and an Irrevocable Stock Power and Assignment by Borrower, each in form and substance satisfactory in all respects to Agent and Lenders, and each relating to Borrower's Equity Interests in Chroma Technologies;

(e)  The original stock certificate representing 100% of the outstanding and issued Equity Interests of Chroma Technologies, as pledged to Agent, for the benefit of itself, Lenders and the other Secured Parties, pursuant to the Stock Pledge Agreement referenced in subsection (d) above;

(f)  A duly executed original Partnership Interest Pledge Agreement by Chroma Technologies, New Subsidiary and Agent, in form and substance satisfactory in all respects to Agent and Lenders, relating to the pledge of the respective Equity Interests of Chroma Technologies and New Subsidiary in Chroma Systems;

(g)  Duly executed Cash Management Agreements or amendments to currently existing Cash Management Agreements by Chroma Systems, in form and substance satisfactory in all respects to Agent and Lenders, pursuant to which Chroma Systems shall be joined to the cash management system presently in place with Bank for Borrower and Guarantors; and

(h)  Certificates of liability insurance, evidence of property insurance and lender's loss payable endorsements, updated to include Chroma Systems as a named insured and all locations of Chroma Systems as insured locations, all as required by the Loan Documents and in form and substance satisfactory in all respects to Agent and Lenders.

     4.     Mortgagee Waiver. To induce Agent and Lenders to enter into this letter agreement, Borrower covenants and agrees to use reasonable efforts to deliver or cause to be delivered to Agent and Lenders, on or before November 30, 2004, a duly executed original Mortgagee Waiver by Wells Fargo Bank, National Association in favor of Agent, in form and substance satisfactory in all respects to Agent and Lenders, with respect to the location of Chroma Systems at 3201 South Susan Street, Santa Ana, California 92704.

     5.     Ratification and Reaffirmation. Borrower and each Guarantor hereby ratifies and reaffirms the Obligations, each of the Loan Documents and all of Borrower's and such Guarantor's covenants, duties, indebtedness and liabilities under the Loan Documents.

     6.     Breach of Letter Agreement. This letter agreement shall be part of the Loan Agreement and a breach of any representation, warranty or covenant herein shall constitute an Event of Default.

     7.     Governing Law; Successors and Assigns. This letter agreement shall be governed by and construed in accordance with the internal laws of the State of Georgia. This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

     8.     No Novation. Except as otherwise expressly provided in this letter agreement, nothing herein shall be deemed to amend or modify any provision of the Loan Agreement or any of the other Loan Documents, each of which shall remain in full force and effect. This letter agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement as herein modified shall continue in full force and effect.

     9.     Further Assurances. Borrower agrees to take such further actions as Agent or Lenders shall reasonably request from time to time in connection herewith to evidence or give effect to any of the transactions contemplated hereby.

[Remainder of Page Left Intentionally Blank.]

     10.     Counterparts. This letter agreement may be executed in any number of counterparts and by different parties to this letter agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.

FLEET CAPITAL CORPORATION,
as Agent and sole Lender

By: /s/ Elizabeth L. Waller              
Title: Senior Vice President

ACCEPTED AND AGREED TO:

THE DIXIE GROUP, INC.
("Borrower")

By: /s/ Gary A. Harmon                    
Title: Vice President and Chief Financial Officer

FABRICA INTERNATIONAL, INC.,
formerly known as Fabrica International

("Guarantor")

By: /s/ Gary A. Harmon                    
Title: Vice President

BRETLIN, INC.
("Guarantor")

By: /s/ Gary A. Harmon                    
Title: President

CANDLEWICK YARNS, INC.
("Guarantor")

By: /s/ Gary A. Harmon                    
Title: President

CHROMA TECHNOLOGIES, INC.
("Guarantor")

By: /s/ Gary A. Harmon                    
Title: President

DIXIE GROUP LOGISTICS, INC.
("Guarantor")

By: /s/ Gary A. Harmon                    
Title: President

MASLAND CARPETS, LLC
("Guarantor")

By: /s/ Gary A. Harmon                    
Title: Vice President

CHROMA ACQUISITIONS, LLC
("Guarantor")

By: /s/ Gary A. Harmon                    
Title: President

The Company has omitted Exhibits A and B to this agreement and agrees to furnish supplementally a copy of the omitted exhibits to the Commission upon request.

EX-10.1

EXHIBIT 10.1

CHROMA TRANSITION AGREEMENT

     THIS CHROMA TRANSITION AGREEMENT (this "Agreement"), dated as of the 8th day of November, 2004, among Collins & Aikman Floorcoverings, Inc., a Delaware corporation ("C&A"), as guarantor of the obligations of Monterey Carpets, Inc., a California corporation and a wholly-owned subsidiary of C&A ("Monterey Carpets"), Monterey Carpets, Monterey Color Systems, Inc., a California corporation and a wholly-owned subsidiary of Monterey Carpets ("MSCI"), Chroma Technologies, Inc., a California corporation ("CTI"), and a wholly-owned subsidiary of The Dixie Group, Inc., a Tennessee corporation ("Dixie"), Dixie, as guarantor of the obligations of CTI, and Chroma Systems Partners, a California general partnership ("Chroma").

W I T N E S S E T H :

     WHEREAS, MCSI holds a one-third general partnership interest in Chroma; and

     WHEREAS, CTI holds a one-third general partnership interest in Chroma; and

     WHEREAS, Chroma Holdings, LLC, a California limited liability company ("Chroma Holdings") holds a one-third general partnership interest in Chroma; and

     WHEREAS, Chroma holds all of the membership interests in Chroma Holdings; and

     WHEREAS, CTI, MCSI and Chroma Holdings are the sole general partners in Chroma; and

     WHEREAS, Monterey Carpets is a party to that certain "Monterey Dyeing and Finishing Agreement" dated as of February 11, 1993, by and between Monterey Carpets and Chroma (the "Dyeing and Finishing Agreement"); and

     WHEREAS, Monterey Carpets has notified Chroma of its intention to terminate the Dyeing and Finishing Agreement effective August 9, 2005, and to immediately begin to reduce the amount of dyeing and finishing services of Chroma utilized by Monterey Carpets; and

     WHEREAS, MCSI has offered to sell its general partnership interest in Chroma to Chroma, in accordance with the terms of the Dyeing and Finishing Agreement and the Chroma Partnership Agreement dated as of December 17, 1992; and

     WHEREAS, the Chroma Partnership Agreement and the Dyeing and Finishing Agreement provide that, on early termination of the Dyeing and Finishing Agreement, Chroma shall have the right and option to purchase the Partnership Interest for the sum of $1.00; and

     WHEREAS, Monterey Carpets and CTI desire to provide for an orderly termination of the dyeing and finishing services heretofore provided to Monterey Carpets by Chroma, and to minimize the disruption and expense to Chroma and Dixie caused by such termination; and

     WHEREAS, Chroma desires to acquire MCSI's one-third partnership interest in Chroma on the terms and subject to the conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements, and upon the terms and subject to the conditions hereinafter set forth, the parties do hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1     Definitions. The following capitalized terms used herein and in the agreements and other documents collateral hereto which incorporate the terms set forth below by reference shall have the meanings set forth opposite such term below:

"C&A" has the meaning set forth in the preamble.

"Chroma" has the meaning set forth in the preamble.

"Closing" has the meaning set forth in Section 10.1.

"Closing Date" has the meaning set forth in Section 10.1.

"Chroma Holdings" has the meaning set forth in the recitals.

"Chroma Partnership Agreement" means the Partnership Agreement of Chroma currently in effect.

"CTI" has the meaning set forth in the recitals.

"CTI Obligations" has the meaning set forth in Section 13.2.

"Discounted Partnership Pricing" has the meaning set forth in Section 7.3.

"Dixie" has the meaning set forth in the preamble.

"Dyeing and Finishing Agreement" has the meaning set forth in the recitals.

"Effective Time" means 1:00 p.m. Eastern Standard Time on the Closing Date.

"Enron" has the meaning set forth in Section 6.4.

"Enron Claim" has the meaning set forth in Section 6.4.

"Fabrica" means Fabrica International, Inc., a California corporation and a wholly-owned subsidiary of Dixie.

"Losses" has the meaning set forth in Section 12.1.

"MCSI" has the meaning set forth in the recitals.

"Monterey Carpets" has the meaning set forth in the preamble.

"Monterey Carpets Obligations" has the meaning set forth in Section 13.1.

"Partnership Agreement" has the meaning set forth in the recitals.

"Partnership Interest" means the one-third interest in Chroma held by MCSI.

"Pre-Closing Partnership Obligations" has the meaning set forth in Section 2.2.

"Skein Dyeing Associates" has the meaning set forth in Section 7.2.

"Skein Dyeing Equipment" has the meaning set forth in Section 7.3.

"Transition Period" has the meaning set forth in Section 7.8.

"WARN Act" has the meaning set forth in Section 7.3.

ARTICLE II

SALE OF PARTNERSHIP INTEREST

2.1     Purchase by Chroma. Upon the terms and subject to the conditions of this Agreement, Chroma shall purchase the Partnership Interest at Closing.

2.2     Effect of Purchase. Upon purchase of the Partnership Interest by Chroma pursuant to Section 2.1, any and all obligations thereafter arising under the Chroma Partnership Agreement shall be the sole obligation of the holders of the partnership interests in Chroma, and MCSI shall have no liability therefor, except as otherwise expressly provided in this Agreement. Notwithstanding the foregoing, MCSI shall remain obligated to perform and satisfy all the terms and conditions of this Agreement following such purchase and sale, (including, but not limited to, the obligation to indemnify Chroma for 50% of any amount paid to satisfy the Enron Claim as provided by Section 6.4) and, notwithstanding anything to the contrary that may be contained in the Partnership Agreement or the Uniform Partnership Act, as in effect in California, MCSI shall not be released from any liability or responsibility with respect to partnership obligations to third parties othe r than CTI, Fabrica, Dixie and their affiliates relating to any period prior to the Closing Date (the "Pre-Closing Partnership Obligations"). For purposes of this Agreement, Pre-Closing Partnership Obligations shall include contingent as well as fixed obligations and unknown as well as known obligations related to Chroma, but Pre-Closing Partnership Obligations shall be limited solely to obligations to third parties unaffiliated with Chroma, CTI, Fabrica and Dixie (such as the Enron Claim) that are asserted after Closing but that arise from events or circumstances that existed or occurred prior to Closing with respect to such Pre-Closing Partnership Obligations. MCSI shall be liable for a share of the Pre-Closing Partnership Obligations equal to 50% thereof, its pre-Closing beneficial interest. Chroma, CTI, and Dixie represent and warrant to Monterey Carpets and MCSI that, to their knowledge, there are no pending or threatened claims against Chroma, CTI, Fabrica or Dixie arising under the Partnership Agre ement, other than the Enron Claim. Notwithstanding the foregoing, Monterey Carpets and MCSI acknowledge that Chroma's representation and warranty expressly does not cover any matter of which Monterey Carpets or MCSI has or would reasonably be deemed to have any knowledge Monterey Carpets and MCSI represent and warrant to Chroma, CTI and Dixie that, to their knowledge, there are no pending or threatened claims against Monterey Carpets or MCSI arising under the Partnership Agreement, other than the Enron Claim.

ARTICLE III

PURCHASE PRICE

3.1 Purchase Price for the Partnership Interest. The purchase price for the Partnership Interest shall be One Dollar ($1.00), as provided in the Partnership Agreement and the Dyeing and Finishing Agreement, and shall be payable at Closing.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF MONTEREY CARPETS AND MCSI

4.1     Representations and Warranties Concerning Monterey Carpets. As a material inducement to Chroma, CTI and Dixie to enter into this Agreement and consummate the transactions contemplated hereby, Monterey Carpets makes the following representations and warranties to Chroma, CTI and Dixie as of the date hereof:

4.1.1  Organization of Monterey Carpets. Monterey Carpets is duly organized, validly existing and in good standing under the laws of its state of organization, the State of California.

4.1.2  Authorization of Transaction. Monterey Carpets has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Monterey Carpets, enforceable in accordance with its terms and conditions. Monterey Carpets is not required to give any notice to, make any filing with or obtain any authorization, consent or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.

4.1.3  Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which Monterey Carpets is subject or any provision of the charter or bylaws of Monterey Carpets or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which Monterey Carpets is a party or by which it is bound or to which any of its assets is subject.

4.1.4  No Brokers' or Finders' Fees. Monterey Carpets has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Dixie, Fabrica, Chroma or CTI could become liable or obligated.

4.2     Representations and Warranties Concerning MCSI. As a material inducement to Chroma, CTI and Dixie to enter into this Agreement and consummate the transactions contemplated hereby, Monterey Carpets makes the following representations and warranties to Chroma, CTI and Dixie as of the date hereof:

4.2.1  Organization of MCSI.

(a)  MCSI is a corporation duly organized, validly existing and in good standing under the laws of California.

(b)  MCSI has no subsidiaries.

4.2.2  No Conflict. The execution and delivery of this Agreement, the consummation of the transactions contemplated herein, and the performance of the covenants and agreements contained herein will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of MCSI, (ii) violate, conflict with or result in a breach or default under or cause the termination or acceleration of any term or condition of any mortgage, indenture, contract, license, permit, instrument, trust document, or other agreement, document or instrument to which MCSI is a party or by which MCSI or its properties may be bound, (iii) violate any material provision of law, statute, rule or regulation by which MCSI is a party or by which it or its properties may be bound, (iv) violate or conflict with any material order, judgment, decree or ruling of any governmental authority applicable to MCS I or its assets, or (v) result in the creation or imposition of any lien, claim, charge, restriction, security interest or encumbrance of any kind whatsoever upon any asset of MCSI.

4.2.3  No Required Consents and Approvals. Other than consents and approvals which have been obtained, no consent or approval is required by virtue of the execution hereof or the consummation of any of the transactions contemplated herein to avoid the violation or breach of, or the default under, or the creation of a lien on assets of MCSI pursuant to the terms of, any regulation, order, decree or award of any court or governmental agency or any lease, contract, mortgage, note, license to manufacture and distribute products, or any other instrument to which MCSI is a party or to which its property or any of the Shares is subject.

4.2.4  No Brokers' and Finders' Fees. MCSI has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Dixie, Fabrica, Chroma or CTI could become liable or obligated.

4.3     Representations and Warranties Concerning the Partnership Interest. As a material inducement to Chroma, CTI and Dixie to enter into this Agreement and consummate the transactions contemplated hereby, Monterey Carpets and MCSI make the following representations and warranties to Chroma, CTI and Dixie as of the date hereof:

4.3.1  Ownership. MCSI owns good and marketable record and beneficial title to the Partnership Interest; the Partnership Interest is free and clear of any lien, restriction, claim, equity, charge, option, right of first refusal, or encumbrance, with no defects of title whatsoever. Neither Monterey Carpets nor MCSI owns, directly or indirectly, any other interest in Chroma or Chroma Holdings, other than the Partnership Interest, nor does either of them have any right of any kind to have any such interest issued to them in Chroma or Chroma Holdings. MCSI is the sole beneficial and record owner of the Partnership Interest. Except for the sale to Chroma as contemplated herein, neither Monterey Carpets nor MCSI has sold, transferred or otherwise disposed of the Partnership Interest or any right or interest therein, nor are Monterey Carpets or MCSI a party to any agreement obligating any of them to do so, other than the Partnership Agreement and this Agreement. Neithe r Monterey Carpets nor MCSI has granted, and no person or entity has any right or option to purchase the Partnership Interest or any right therein, except for the rights of Chroma under the Chroma Partnership Agreement and this Agreement.

ARTICLE V

REPRESENTATIONS, WARRANTIES AND COVENANTS OF CTI, CHROMA AND DIXIE

     As a material inducement to Monterey Carpets, MCSI and C&A to enter into this Agreement and consummate the transactions contemplated hereby, CTI hereby makes the following representations and warranties to Monterey Carpets and C&A as of the date hereof:

5.1     Authorization. This Agreement has been duly executed and delivered by CTI, Chroma and Dixie and constitutes the legal, valid and binding agreement of CTI, Chroma and Dixie enforceable in accordance with its terms.

5.2     No Conflict. Neither the execution and delivery of this Agreement nor the performance of the transactions contemplated herein by CTI, Chroma and Dixie will violate or conflict with or constitute a default under any mortgage, indenture, contract, agreement, license, permit, instrument or trust or any order or ruling of any governmental authority to which CTI, Chroma and Dixie is a party or by which CTI is bound, or violate any provision of law, statute, rule or regulation to which CTI is subject.

5.3     No Brokers' and Finders' Fees. Neither CTI, Chroma and Dixie nor anyone acting on behalf of CTI has done anything to cause or incur any liability to any party for any brokers' or finders' fees or the like in connection with this Agreement or any transaction contemplated hereby.

5.4     No Conflict. The execution and delivery of this Agreement, the consummation of the transactions contemplated herein, and the performance of the covenants and agreements contained herein will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of CTI, Chroma and Dixie (ii) violate, conflict with or result in a breach or default under or cause the termination or acceleration of any term or condition of any mortgage, indenture, contract, license, permit, instrument, trust document, or other agreement, document or instrument to which CTI, Chroma or Dixie is a party or by which CTI, Chroma or Dixie or its or their properties may be bound, (iii) violate any material provision of law, statute, rule or regulation by which CTI, Chroma and Dixie is a party or by which it or its or their properties may be bound, (iv) violate or co nflict with any material order, judgment, decree or ruling of any governmental authority applicable to CTI, Chroma and Dixie or its or their assets, or (v) result in the creation or imposition of any lien, claim, charge, restriction, security interest or encumbrance of any kind whatsoever upon any asset of CTI, Chroma or Dixie.

5.5     No Required Consents and Approvals. No consent or approval is required by virtue of the execution hereof or the consummation of any of the transactions contemplated herein.

5.6     Approvals of Third Parties; Satisfaction of Conditions to Closing. CTI will use its reasonable, good faith efforts, and will cooperate with Monterey Carpets, to secure all necessary consents, approvals, authorizations and exemptions from governmental agencies and other third parties. CTI will use its reasonable, good faith efforts, to obtain the satisfaction of the conditions specified in Articles VIII, as shall be required in order to enable Monterey Carpets to cause the Closing to occur on the Closing Date.

Notwithstanding the foregoing, Chroma's representations and warranties shall not be deemed to be breached by any matter with respect to which Monterey Carpets and MCSI have knowledge or reasonably would be deemed to have knowledge.

ARTICLE VI

COVENANTS OF MONTEREY CARPETS

6.1     Pre-Closing Operations. Monterey Carpets hereby covenants and agrees, except as contemplated hereunder, or as consented to in writing by CTI, pending the Closing, that it shall cause the business of MCSI to be operated and conducted in the ordinary course in accordance with prior practices and cause the business of MCSI to be carried on diligently and substantially in the manner as heretofore conducted in the ordinary course of business. Notwithstanding the foregoing, the parties acknowledge that Chroma shall not be obligated to, and shall not, make any distribution of partnership profits whatsoever.

6.2     Access. From the date of this Agreement to the Closing Date, Monterey Carpets shall cause MCSI to (i) provide CTI and its designees with such information as CTI may from time to time reasonably request with respect to MCSI and the transactions contemplated by this Agreement, (ii) provide CTI and its designees, officers, counsel, accountants, actuaries and other authorized representatives access during regular business hours and upon reasonable notice to the books, records, offices, personnel, counsel, accountants and actuaries of MCSI as CTI or its designees may from time to time reasonably request, and (iii) permit CTI and its designees to make such inspections thereof as CTI may reasonably request.

6.3     Approvals of Third Parties; Satisfaction of Conditions to Closing. Monterey Carpets will use its reasonable, good faith efforts, and will cooperate with CTI, to secure all necessary consents, approvals, authorizations and exemptions from governmental agencies and other third parties. Monterey Carpets will use its reasonable, good faith efforts to obtain the satisfaction of the conditions specified in Articles IX, as shall be required in order to enable CTI to cause the Closing to occur on the Closing Date.

6.4     Enron Claim. Monterey Carpets agrees to indemnify Chroma for 50% of any final judgment against Chroma arising out of the Enron Claim (as defined below), or 50% of any payment made in any final settlement of the Enron Claim plus 50% of any expense or cost associated with defense of the Enron Claim. As of the date hereof, Enron Energy Services, Inc. ("Enron") has asserted a claim for amounts asserted to be due under that certain Master Firm Natural Gas Sales Agreement dated September 1, 1999, including Transaction Agreement No. 2, by and between Enron and Chroma but no litigation has been filed asserting such claim (the "Enron Claim"); such claim has been asserted in a letter dated March 21, 2003, addressed to Mr. James Harley, President of Chroma. CTI and Monterey Carpets agree to jointly determine how to proceed in response to the claim, including whether and when to settle the claim, if the parties should agree to do so. During the penden cy of the claim, Monterey Carpets agrees to pay to Chroma, monthly, one-half of all fees and expenses of counsel incurred by Chroma.

ARTICLE VII

COVENANTS OF THE PARTIES - TRANSITION OF BUSINESS

     Monterey Carpets, MCSI and CTI, respectively, hereby covenant to and agree with one another as follows:

7.1     Pre-Closing Operations of Chroma. MCSI and CTI each hereby covenant and agree, except as contemplated hereunder, or as consented to in writing by the other, pending the Closing, that they shall operate and conduct Chroma's business only in the ordinary course in accordance with prior practices and carry on Chroma's business diligently and substantially in the manner as heretofore conducted and not make or institute any methods of sale, lease, management, accounting or operation except in the ordinary course of business consistent with past practice. Notwithstanding the foregoing, the parties acknowledge that Chroma shall not be obligated to, and shall not, make any distribution of partnership profits whatsoever.

7.2     Employment of Skein Dyeing Associates. As of the Effective Time, Monterey Carpets will offer at-will, full-time employment to all associates of Chroma set forth on Schedule 7.2, attached hereto (the "Skein Dyeing Associates"). Such employment shall be offered to each such associate on the same terms and conditions, including (but not limited to) hourly wage-rates and employee benefits, as such associates are currently employed by Chroma. Furthermore, Monterey Carpets shall be responsible for any worker's compensation benefits to which the Skein Dyeing Associates shall be entitled. Such employment, if accepted, shall commence immediately upon the Effective Time. Monterey Carpets will give those employees the notice required by the Worker Adjustment and Retraining Notification Act (the "WARN Act") as a consequence of any act of the parties contemplated by this Agreement, or otherwise. Monterey Carpets shall indemnify and hold harmless CTI, Dixie, Chroma and Fabrica from any expense, claim or liability resulting from giving the WARN Act Notice or from a failure to give any such notice and any failure to employ any such Skein Dyeing Associate as required by this Agreement. Additionally, Monterey Carpets shall be responsible for any severance cost resulting from Chroma's termination of the Skein Dyeing Associates pursuant to this Agreement, and any such severance cost resulting from the termination of any such Skein Dyeing Associate by Monterey Carpets subsequent to the employment of such associates by Monterey Carpets, pursuant to this Agreement.

7.3     Lease of Skein Dyeing Equipment. As of the Effective Time, Monterey Carpets shall lease all skein dyeing equipment owned by Chroma and used in its skein dyeing operations (the "Skein Dyeing Equipment") from Chroma. A list of such Skein Dyeing Equipment is set forth on Schedule 7.3.1. In consideration of such lease, Monterey Carpets shall pay to Chroma an amount per pound equal to the Discounted Partnership Pricing (as defined below) for each pound of yarn skein dyed by Monterey Carpets utilizing such Skein Dyeing Equipment. Calculation of the per pound Discounted Partnership Pricing shall be completed monthly and paid by Monterey Carpets to Chroma as soon as reasonably practicable following such calculation. The term of such lease shall be for a period of six (6) months from the Effective Time. At the end of such term, or at any time during the term, at the election of Monterey Carpets, Monterey Carpets may purchase the Ske in Dyeing Equipment at a price to be mutually agreed upon by Chroma and Monterey Carpets. Monterey Carpets may purchase some or all of the Skein Dyeing Equipment pursuant to this election, but upon electing to purchase such equipment Monterey Carpets shall be obligated to remove it at its sole cost and expense as soon as reasonably practicable. For the purposes of this Agreement, "Discounted Partnership Pricing" shall mean an amount equal to the customary per pound Chroma partnership pricing as set forth on Schedule 7.3.2 less a discount equal to the total per pound labor charge for such skein dyed yarn as set forth on Schedule 7.3.2. Chroma, at its expense, shall continue to supply dyes, chemicals and other materials used in the yarn conversion process, consistent with past practices. All yarn that is skein dyed by Monterey Carpets utilizing the Skein Dyed Equipment shall be the sole responsibility of Monterey Carpets, and none of Dixie, Chroma, CTI or Fabrica makes, s hall make or shall be deemed to have made any representation or warranty with respect thereto, nor shall any of Dixie, Chroma, CTI, or Fabrica have any liability to Monterey Carpets for the condition, quality or merchantability of such skein dyed yarn to Monterey Carpets or to any purchaser or user of product incorporating such skein dyed yarn. Monterey Carpets agrees to indemnify and hold harmless Dixie, Chroma, CTI, and Fabrica from any cost, damage, expense, liability or claim whatsoever resulting from any claim asserted or based upon the condition, quality, merchantability or use of such skein dyed yarn. Upon termination of Chroma's skein dyeing services, Monterey Carpets will purchase all remaining supplies, dyes, chemicals and other such materials supplied by Chroma pursuant to this Agreement, at their fair market value.

7.4     Agreement. The parties hereto agree to cooperate with one another to the extent necessary to move or relocate equipment, including sample racks, cutting tables and other equipment, in order to facilitate the orderly transition of business contemplated by this Agreement. The parties hereto agree that Royce Renfroe and Ralph Grogan shall be responsible for negotiating the details of all such matters. Each party shall be responsible for the expense of moving or relocating its own equipment to the extent any such movement or relocation is necessitated by the parties' agreement.

7.5     Intentionally Omitted.

7.6     Participation of Harley in Benefit Plans. Chroma agrees to permit Jim Harley to participate in all benefit plans maintained and continued by Chroma until December 31, 2004, so long as Mr. Harley is employed by Chroma. In addition, Chroma agrees to be responsible for the determination and payment of any bonus to Mr. Harley for the fiscal year ending in 2004.

7.7     Adherence to Chroma Safety Standards. The Skein Dyeing Associates and any other associates employed by Monterey Carpets will be working in close proximity to Chroma employees. Accordingly, to provide a safe working environment with consistent safety rules, Monterey Carpets agrees that all associates employed by Monterey Carpets and working in the Chroma facilities shall adhere to and follow all safety standards established by Chroma. Monterey Carpets agrees to enforce these safety standards in the same manner and to the same degree as Chroma enforces such standards with its associates.

7.8     Administrative Services and IT Equipment. Monterey Carpets agrees to leave all phone, voicemail, networking and server based equipment in place for a period of one year from the Effective Time (the "Transition Period"); provided, however, Monterey Carpets and CTI may jointly agree to the earlier or phased-out removal of such equipment to the extent practicable. During the Transition Period, IT personnel of CTI, Fabrica and Monterey Carpets shall work jointly to move data and e-mail services for the Chroma business to IT Systems maintained by Dixie. Monterey Carpets agrees to provide personnel and payroll services, shipping services and other miscellaneous services and supplies to Chroma during the Transition Period, in addition to IT services, as such services have heretofore been provided, until Monterey Carpets terminates such functions. Monterey Carpets shall continue to charge Chroma for such services at the rates set forth on Sc hedule 7.8, and, to the extent such services are phased-out by agreement of the parties, the charge for such services shall be proportionately reduced. At Closing, CTI or its designee may hire Gene Farnell. Thereafter, for so long as Mr. Farnell is employed by CTI or its designee, and, in addition to any other pro-rated cost provided for hereunder, Monterey Carpets agrees that it shall reimburse CTI or its designee monthly in an amount to be determined by multiplying Mr. Farnell's salary cost plus benefits ($8,442/month) times a percentage equal to the percentage of time Mr. Farnell devotes attention to the skein dyeing and other services continued by Monterey Carpets. CTI may agree with Monterey Carpets to purchase some of the IT equipment (including phone, voicemail, servers and other data processing and communications equipment) utilized during the Transition Period, such agreement to include pricing and other terms of purchase. At the election of CTI, Monterey Carpets shall assign to CTI any contracts to which it is a party (to the extent such contracts are assignable) which CTI deems necessary to the continued provision of the services to be provided by it hereunder.

7.9     Payment to CTI. At the Effective Time, Monterey Carpets will pay CTI Two Hundred Thousand Dollars ($200,000) to assist it in meeting the expenses and costs resulting from the termination of the Dyeing and Finishing Agreement. It is acknowledged and agreed by the parties that Monterey Carpets shall be continually reducing the amount of dyeing and finishing business with Chroma during the Transition Period, and that it is estimated that all of Monterey Carpets' dyeing and finishing volume will be moved from Chroma by early 2005. It is agreed that the Dyeing and Finishing Agreement shall be terminated effective as of the date hereof and that all of Monterey Carpets' obligations under the Dyeing and Finishing Agreement shall be superseded and satisfied by fulfillment of the terms and conditions of this Agreement.

7.10     Pricing for Monterey Carpets. From the date hereof and until January 31, 2005, Chroma will offer partner pricing to Monterey for all dyeing and finishing services performed by Chroma for Monterey Carpets, in accordance with the pricing schedule attached hereto as Schedule 710. After January 31, 2005, Chroma shall provide dyeing and finishing services to Monterey Carpets until completion of the Transition Period, at commercially reasonable prices mutually agreed to by and between the parties. All such dyeing and finishing services, other than the skein dyeing services shall be provided by Chroma to Monterey Carpets on the terms and subject to the conditions set forth in Sections 1.2, 3.1, 4, 5, 7 and 8 of the Dyeing and Finishing Agreement, although the Dyeing and Finishing Agreement is deemed fulfilled and superseded by this Agreement.

ARTICLE VIII

CONDITIONS TO MONTEREY CARPETS' OBLIGATIONS

          Each of the obligations of Monterey Carpets to be performed hereunder shall be subject to the satisfaction at or prior to the Closing Date of each of the following conditions:

8.1     Purchase Price. Chroma shall have tendered payment of the purchase price in accordance with Section 3.1 at the Closing.

8.2     Accuracy of Representations and Warranties. The representations and warranties of Dixie, CTI and Chroma set forth in Article V shall have been true and correct in all material respects on the date made, and shall be true and correct on the Closing Date.

8.3     Performance of Covenants. CTI shall have performed and complied with all covenants, obligations, and conditions required to be performed or complied with by CTI on or before the Closing Date pursuant to this Agreement.

8.4     Opinion of Counsel to CTI. Monterey Carpets shall have received from counsel for CTI an opinion, dated the Closing Date, in the form of Exhibit A.

8.5     Documents Satisfactory in Form and Substance. All agreements, certificates, opinions and other documents delivered by CTI to Monterey Carpets hereunder shall be in form and substance reasonably satisfactory to counsel for Monterey Carpets, in the exercise of such counsel's reasonable judgment.

ARTICLE IX

CONDITIONS TO CTI'S OBLIGATIONS

          The obligations of CTI be performed hereunder shall be subject to the satisfaction on or before the Closing Date of each of the following conditions:

9.1     Accuracy of Representations and Warranties. The representations and warranties of Monterey Carpets and MCSI set forth in Article IV shall have been true and correct in all material respects on the date made and shall be true and correct on the Closing Date.

9.2     Performance of Covenants. Monterey Carpets and MCSI shall have performed and complied with all covenants, obligations, and conditions required to be performed or complied with by Monterey Carpets and MCSI on or before the Closing Date pursuant to this Agreement.

9.3     Opinion of Counsel to Monterey Carpets. CTI shall have received from Womble Carlyle Sandridge & Rice, PLLC, counsel to Monterey Carpets, an opinion, dated the Closing Date, in the form of Exhibit B.

9.4     Documents Satisfactory in Form and Substance. All agreements, certificates, opinions and other documents delivered by Monterey Carpets and MCSI to CTI hereunder shall be in form and substance reasonably satisfactory to counsel for CTI, in the exercise of such counsel's reasonable judgment.

ARTICLE X

CLOSING

10.1     Closing Date. Subject to the satisfaction or waiver of the conditions set forth herein, the closing of the purchase and sale of the Shares (the "Closing") shall take place at 1:00 p.m. Eastern Standard Time on November 8, 2004, at the offices of Shumacker Witt Gaither & Whitaker, P.C., 1100 SunTrust Bank Building, 736 Market Street, Chattanooga, Tennessee 34702, or at such other date, time and place as the parties shall agree. The date of the Closing is referred to herein as the "Closing Date."

10.2     Closing Requirements. At the Closing, the following shall occur:

(a)  The parties hereto shall exchange and deliver the certificates and other evidence as to the accuracy of the representations and warranties contained herein, and the compliance with the covenants and agreements contained herein, which are required to be delivered by such party as herein provided.

(b)  MCSI shall have delivered the Assignment of Partnership Interest in the form attached hereto as Exhibit C.

(c)  Counsel for Monterey Carpets shall deliver to CTI the opinions specified in Section 9.3 and counsel for CTI shall deliver to Monterey Carpets the opinion specified in Section 8.4.

(d)  All other documents, instruments and writings required to be delivered by a party at or prior to the Closing Date pursuant to this Agreement will be delivered to the party entitled thereto.

ARTICLE XI

TERMINATION PRIOR TO CLOSING

11.1     Termination of Agreement. This Agreement may be terminated at any time prior to the Closing:

(a)  At the election of CTI, at or prior to Closing, if any of the conditions precedent set forth in Article IX have not been fulfilled on or before the Closing Date; or

(b)  At the election of Monterey Carpets, at or prior to Closing, if any of the conditions precedent set forth in Article VIII have not been fulfilled on the Closing Date; or

(c)  By the mutual written consent of CTI and Monterey Carpets.

11.2     Termination of Obligations. Termination of this Agreement pursuant to this Article XI shall terminate all obligations of the parties hereunder.

ARTICLE XII

INDEMNIFICATION

12.1     Mutual Indemnification Obligation. In addition to any other specific requirement for indemnification set forth herein, Monterey Carpets and MCSI hereby agree to indemnify and hold harmless Chroma and CTI, and Chroma and CTI hereby agree to indemnify and hold harmless Monterey Carpets, against any and all liability, claims, damages, losses, costs or expenses, including reasonable attorneys' fees ("Losses"), relating to any breach of, noncompliance with or misrepresentation by such indemnifying party contained in any representation, warranty or covenant contained herein.

ARTICLE XIII

GUARANTIES

13.1     C&A Guaranty. C&A hereby irrevocably and unconditionally guarantees to Chroma and CTI all obligations and agreements to be performed by Monterey Carpets or MCSI hereunder, including, but not limited to, any obligation of indemnification (the "Monterey Carpets Obligations"). The guaranty provided by C&A pursuant to this Section 13.1 is a guaranty of payment and performance, not merely of collection. If Monterey Carpets or MCSI shall fail timely to perform or to pay any Monterey Carpets Obligation hereunder, C&A shall pay or perform such obligation as and when due. C&A hereby waives (i) promptness, diligence, notice, disclosure, demand for payment, presentment, protest and dishonor, and (ii) any right to force CTI to proceed first, concurrently or jointly against Monterey Carpets, MCSI, any other guarantor, surety or other co-obligor.

13.2     Dixie Guaranty. Dixie hereby irrevocably and unconditionally guarantees to Monterey Carpets all obligations and agreements to be performed by CTI hereunder, including, but not limited to, any obligation of indemnification (the "CTI Obligations"). The guaranty provided by Dixie pursuant to this Section 13.2 is a guaranty of payment and performance, not merely of collection. If CTI shall fail timely to perform or to pay any CTI Obligation hereunder, Dixie shall pay or perform such obligation as and when due. Dixie hereby waives (i) promptness, diligence, notice, disclosure, demand for payment, presentment, protest and dishonor, and (ii) any right to force Monterey Carpets to proceed first, concurrently or jointly against CTI, any other guarantor, surety or other co-obligor.

ARTICLE XIV

MISCELLANEOUS

14.1     Survival of Representations and Warranties. The representations and warranties in this Agreement, or in any exhibit, list, instrument or document delivered in connection herewith or therewith shall survive the Closing.

14.2     Entire Agreement. This Agreement (including the Schedules and Exhibits and their underlying executed agreements), constitutes the sole understanding of the parties with respect to the subject matter hereof. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto.

14.3     Parties Bound by Agreement; Successors and Assigns. The terms, conditions and obligations of this Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns thereof.

14.4     Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.

14.5     Modification and Waiver. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar).

14.6     Expenses. Except as otherwise provided herein, Monterey Carpets and CTI shall each pay all costs and expenses incurred by them or it or on their or its behalf in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of their or its own financial consultants, accountants and counsel.

14.7     Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered by telecopy transmission or personally by any overnight delivery service, fees prepaid,

if to Monterey Carpets to:

Leonard F. Ferro
Chief Financial Officer
311 Smith Industrial Boulevard
Dalton, Georgia 30722
Fax: 706-259-2125

with a copy to:

G. Donald Johnson Esq.
Womble Carlyle Sandrige & Rice, PLLC
One Atlantic Center, Suite 3500
1201 W. Peachtree St.
Atlanta, GA 30309
Telecopy Number: 404.870-4878

if to CTI to:

CTI
c/o The Dixie Group, Inc.
2208 South Hamilton Street
Dalton, GA 30721-4974
Attn: Mr. Gary A. Harmon
Telecopy Number: 706-876-5896

with a copy to:

John F. Henry, Jr., Esq.
Shumacker Witt Gaither & Whitaker, P.C.
1100 SunTrust Bank Building
736 Market Street
Chattanooga, TN 37402
Telecopy Number : 423-266-4138

or at such other address or number for a party as shall be specified by like notice. Any notice which is delivered personally or by telecopy transmission in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon the business day following the date delivery is made.

14.8     Further Cooperation. From and after the Closing Date, the parties will each take all such action and deliver all such documents as shall be reasonably necessary or appropriate to confirm and vest title to the Shares in CTI.

14.9     Governing Law; Construction. This Agreement is executed by the parties in, and shall be construed in accordance with and governed by the laws, of the State of Georgia without giving effect to the principles of conflicts of law thereof. No provision of this Agreement or any related document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party's having or being deemed to have structured or drafted such provision.

14.10     Submission to Jurisdiction. For purposes of disputes arising under this Agreement, the parties hereto submit themselves to the jurisdiction of the state and federal courts located in the Northern District of Georgia, provided however, that nothing contained herein shall be deemed a waiver by either party of any right it may have to remove a cause of action brought in state court to a federal court Each of the parties hereby consents to the service of process by registered mail at its address set forth above and agrees that its submission to jurisdiction and its consent to service of process by mail is made for the express benefit of the other party.

14.11     Public Announcements. Except as otherwise required by law, no public announcement shall be made with regard to the transactions contemplated by this Agreement without the prior written consent (as to form and content and timing) of Monterey Carpets, MCSI and CTI, which consent shall not be unreasonably withheld.

14.12     No Third-Party Beneficiaries. With the exception of the parties to this Agreement, there shall exist no right of any person to claim a beneficial interest in this Agreement or any rights occurring by virtue of this Agreement.

14.13     References. Whenever reference is made in this Agreement to any Article, Section, Schedule or Exhibit, such reference shall be deemed to apply to the specified Article or Section of this Agreement or the specified Schedule or Exhibit to this Agreement.

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     IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf on the date indicated.

DIXIE:

THE DIXIE GROUP, INC.

By: /s/ GARY A. HARMON                          
     Chief Financial Officer and Vice President

MONTEREY CARPETS:

MONTEREY CARPETS, INC.

By: /s/ LEONARD F. FERRO                         
     Vice President and Chief Financial Officer

MCSI:

MONTEREY COLOR SYSTEMS, INC.

By: /s/ LEONARD F. FERRO                        
     Vice President and Chief Financial Officer

C & A:

COLLINS & AIKMAN FLOORCOVERINGS, INC.

By: /s/ LEONARD F. FERRO                        
     Vice President and Chief Financial Officer

CHROMA:

CHROMA SYSTEMS PARTNERS

By: /s/ JIM HARLEY                          
     President

CTI:

CHROMA TECHNOLOGIES, INC.

By: /s/ GARY A. HARMON                   
     President

The Company has omitted Exhibits A and B to this agreement and agrees to furnish supplementally a copy of the omitted exhibits to the Commission upon request.